Welcome to the site. I'm PDtax, and will be helping you today.
Can you tell me what capacity you are acting in?
If you're the attorney, this will be easy.
You provided an EIN or Social Security number for processing these payments. The tax return you file for your practice, Schedule C or business entity, will report income that matches the 1099's received for this client.
I like to report the distributions out on the same form, and for the same amount, so that there is reporting on your return but no income.
For example, the first collection for $25,000 can be disclosed as a 1099 income receipt on Schedule C. Then, on the same form, use an expense line as an other expense "DISBURSED ON BEHALF OF CLIENT XXXXX XXXXX (id#***-**-****). The net effect on your taxable income will be 0, and the 109 total will match the total IRS expects you to report.
The second can be reported in the same manner, with the disbursement going out to the client (and I like to identify the client with ID#) in effect in and out of an escrow or IOLA (New York's trust bank account for escrow funds) account.
Reporting on Schedule C?
yes, Schedule C
Personal injury awards are exempt from tax to client under IRC 104. As such, 1099 reporting is not required.
Perfect, thank you!